The SEC announced on Jan. 3 that disclosure and accounting fraud charges will be levied against Life Partners Holdings Inc., (NASDAQ GS: LPHI) a Waco-based, publicly traded life settlement firm that is considered a pioneer in the secondary market.
The SEC also alleges that CEO Brian Pardo, general counsel Scott Paden and CFO David Marten misled shareholders by failing to alert them of an important and essentially detrimental risk that the company was taking. The allegations state that Life Partners Inc. was “systematically and materially underestimating the life expectancy estimates that it used to price transactions.” The three executives are alleged to have then overvalued the assets held on the company’s books in the interest of creating the appearance of a consistent flow of income from the life settlement transactions.
The allegations state that since 1999, Life Partners Inc. have utilized the services of a Dr. Donald T. Cassidy, a Reno, Nev.-based hematologist/oncologist, records show, with no actuarial training. Dr. Cassidy apparently utilized a life expectancy methodology that was formulated by a former underwriter and current partner in the company that underestimated life expectancies therefore making the policies that were being sold appear more attractive to investors. Dr. Cassidy was busy with patients when NU called.
The SEC alleges that during the process of artificially underestimating the life expectancy of policyholders that Pardo and Paden then sold $11.5 million and $300,000 respectively in Life Partners stock at inflated prices.
In an emailed statement, Life Partners’ Chairman Pardo, stated, “It is very disappointing that the SEC has chosen to pursue litigation over issues that we believe have no merit and financial presentation issues that we do not believe are material. We have always done our best to deliver value to our shareholders and to run an honest and transparent company. We intend to vigorously defend ourselves against these meritless claims.”